INTC Conf Call: Otellini ‘Very Excited’ About Windows 8

By Tiernan Ray

Following Q3 results from Intel (INTC) this afternoonthat surpassed estimates, and a Q4 outlook that missed consensus, CEO Paul Otellini and CFO Stacy Smith held a conference call with analysts to review the results and outlook.

Otellini said PC sales this quarter will “grow at about half of what we would expect from normal seasonality,” just as was the case last quarter, in his view.

He said Intel’s projected $13.6 billion in revenue, give or take $500 million, is actually less than would be implied by even that reduced seasonality, given that some customers are not building as much inventory because they are cautious about overall “market uncertainty” and the impending introduction of Microsoft‘s (MSFT) Windows 8, which becomes available at retail on October 26th.

There will be an “incremental decrease” in inventory among customers toward the end of the year.

Sales of chips for corporate servers were “softening” during the quarter, said Otellini. Data center revenue was softer overall as Intel saw a greater mix of growth in chips for “cloud” computing versus traditional enterprise computing, leading to a “mix” that brought down the average selling price for the business as a whole.

However, when Otellini was asked whether mix would continue to bring down ASPs for the data center over the longer term, Otellini indicated that was not the case, that in fact last quarter was “a bit of an anomaly.” Otellini noted in particular that Intel was seeing some of its fastest data center growth in high-performance computing, where it sells processors at or near the highest of its prices.

Intel shares are currently down 80 cents, or 3.7%, at $21.55, having continued to go lower in late trading.

Otellini talked up the bright prospects for numerous ultrabook and tablet computers running the company’s “Core” series processors and its “Atom” chips:

There will be more than 140 core-based ultrabooks, more than 40 of which will have touch. This will include more than a dozen convertibles that combine the productivity of the laptop with the convenience of a tablet. Many of the ultra book skews will hit the mainstream 699 price point with some burst skews well below even that number. Q4 will see more than 20 Atom based tablets from six or more leading OEMs using Clover Trail. Clover Trail is a brand new SOC that will enable tablets as thin as 8.5-millimeters and as lit as 1.5 pounds with three weeks of connected standby battery life and all of the compatability that Windows users and Intel customers have come to expect I’m excited about these products and the capabilities they bring to consumers and the enterprise.

When Otellini was asked why demand didn’t seem to be building in advance of Windows 8, he remarked that although “it’s not happening yet,” nevertheless he is “very excited about this operating system,” particularly its use of touch-based gestures:

Tablets have changed the paradigm for people to use computers. They like touch. They like to make their photos get larger with their fingers and everything else that’s good about that so I think we haven’t had a chance to judge how the consumers will embrace this in mainstream PC space or not. I’m very optimistic … we now run tests on Windows 8 touch-enabled ultra books in a number of the major cities and around the world, across multiple demographics, the feedback is universally positive, so I think we’re just too soon to tell.

Otellini was asked about how many tablets might use the Core processors, as opposed to Clover Trail, in addition to the Microsoft Surface tablet. Otellini said “five to eight” may use Core, as a rough estimate. Otellini said it was too soon to say how many devices would use the company’s next-generation processor, “Haswell,” but added,

When you start seeing an ultra book with a detachable touch screen, is it a tablet? And it’s based on Haswell, is it a tablet, an ultra book or a convertible? I don’t know. We’ll have to invent some names for these things as we go along but what I can tell you is the level of innovation there is unbounded.

Haswell devices will show up in the first half of 2013, he said, when pressed on whether it would be the March quarter or not.

Pressed by one analyst on how much of the slowdown in consumer PCs was related to timing of Windows 8, versus how much was related to cannibalization by tablets and phones, Otellini said that “I think it’s a bit of each.” Otellini said that once Windows 8 ships, and consumers begin to try it out, “and we have all of the touch-based ultrabooks out there, we’ll know a lot more so we’ll try to quantify that a bit more for you in 90 days.”

Regarding Intel’s having cut its 2012 capital spending view “pretty significantly,” as Smith put it, the company is not yet projecting its 2013 spending, he said. “Right now we want to fight through a Q4 where we don’t have a lot of visibility before we lock in on a 2013 number,” said Smith. Smith also declined to project 2013 gross margin, other than to say that “startup costs” to commence production of Intel’s chips at 14 nanometers will initially reduce gross margin “two to three points.”

Bet you wouldn't have had that omission if it were your beloved AAPL reporting...

OCTOBER 16, 2012 5:48 P.M.

Jim S wrote:

My sense is part of the delay in B10 is they will be using the 14 nano chip from Intel. A real game changer. The phone is going to be wafer thin, light, very fast and large screen. I don't know if the keyboard will be slideout or not but it will be thin and fast.

OCTOBER 16, 2012 6:36 P.M.

Joemiz wrote:

Preordered Surface RT 32gb today - office preloaded xbox music

OCTOBER 16, 2012 7:59 P.M.

Charles wrote:

Tiny typo, should be $13.6 billionand not $3.6 billion. Thanks.

"He said Intel’s projected $3.6 billion in revenue, give or take $500 million"

OCTOBER 16, 2012 9:50 P.M.

Tiernan Ray wrote:

Charles: Indeed. Thank you for pointing out the error.

OCTOBER 16, 2012 11:56 P.M.

Joemiz wrote:

Just preordered surface tablet - Win8 is coming in a big way

OCTOBER 17, 2012 8:53 A.M.

Market Mayhem wrote:

What's Otellini so excited about? Does he think that Windows 8 is just going to make consumers open their wallets and throw money at Windows hardware? I thought that Ultrabooks were already a bust as far as consumers were concerned. The Intel empire seems to be collapsing as consumers move to less powerful mobile devices. I believe fewer and fewer consumers feel the need to buy desktop iron when they can buy some device they can tote around. I'm sure the days of households with the need for multiple desktop computers are numbered.

About Tech Trader Daily

Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.